Ponzi and pyramid schemes target windfall-seeking consumers

cargeted group and end up parting with their pensions in the hope of more riches by sweet-talking swindlers who push Ponzi or pyramid schemes.

The South African Financial Intelligence Centre distinguishes between a Ponzi and pyramid scheme as follows: the latter refers to a fraudulent scheme in which participants invest in an identified and well-marketed enterprise that offers quick and unusually high returns.

The scheme is unsustainable as funds are not invested but used to support the illusion of an investment scheme. Pyramid schemes are based on the same foundation but pay out to early investors to make it appear as a worthwhile initiative.

The South African Banking Risk Information Centre (Sabric) warns consumers to steer clear of any investment that seems too good to be true. Let the investor beware. If it’s too good to be true, in most cases it is.

People who expect to make a good return on their investment not only get nothing, but also stand to lose most if not all the money they initially invested.

“Scammers will go to great lengths to get victims to invest in these schemes through the use of social engineering tactics,” warns Nischal Mewalall, the chief executive of Sabric.

“They will even come up with convincing, fabricated statistics to make their offer look attractive, so always treat these kinds of schemes with suspicion.”

Gullible consumers, desperate for a financial windfall, are duped by smooth operators who conveniently have “influential” people to vouch for their schemes. However, when things go pear shaped, the influencers are the first to bail out with sizeable profits for their efforts.

The National Consumer Commission blocked a WhatsApp gifting pyramid scheme that has cheated money from more than 230 000 vulnerable South Africans with the promise of providing grocery packs was able to be caught in 2021.

Last month, Mirror Trading International CEO Johann Steynberg was ordered to pay close to $3.5-billion (R63.6-billion) in restitution and penalties in the US. MTI was a Bitcoin-based network marketing scam that began in SA. There was supposed to be about R12.3-billion in its account.

Scam-detection signs:

  • Claims to pay out double-digit returns (30% in a couple of weeks).
  • Claims to be an opportunity of a lifetime.
  • You can’t understand how it generates money.
  • It is not a registered product or a product offered by an authorised financial services provider.
  • Returns or profits earned are dependent on recruiting more members.
  • Be sceptical of any investment’s insistence that you act “NOW”.
  • Be careful of investments that guarantee you high profits with little risk.
  • Do your own research before parting with your life savings.
  • Consult an unbiased third party, like an unconnected broker or licensed financial adviser before investing.
  • If in doubt, walk away.
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